Buffett: Expect 6%-7% Returns From the Market

At the pilgrimage to Omaha, Buffett also discusses stocks like Petro China and warns about derivatives.

OMAHA, Neb. -- With an audience of over 12,000 shareholders hanging on his every word, the Oracle of Omaha held court today at the Berkshire Hathaway ( BRK.A) annual meeting in this Midwestern city.

Along with Berkshire Vice Chairman Charlie Munger, Warren Buffett accepted accolades and fielded shareholder questions from those who traveled from as far away as India and Austria. The crowd, the largest in at least four years, roamed the Omaha Civic Auditorium not only hoping to get a glimpse, handshake and even a picture with Buffett, but also for the opportunity to purchase a plethora of Berkshire goods, from Justin Boots and Kirby vacuums to See's Candy and World Book Encyclopedia, not to mention a host of insurance products.

The questions -- during the nearly six-hour Q&A session -- ranged from queries about Berkshire operating businesses and Buffett's outlook to more general inquiries regarding the duo's view on derivatives and how investors should define success. And, of course, there were plenty of Munger -- and Buffett -- one-liners to keep the crowd laughing.

Murky Markets

Although Buffett is loath to comment on the equity markets, he did hint that current equity prices certainly aren't cheap. More importantly, he thinks returns on equity investments are likely to simply mirror the economy in the coming years. With Buffett expecting gross domestic product and inflation to post only low single-digit growth, stocks are likely to post similar gains, maybe 6-7% including common dividends.

"That math isn't bad, but it is bad for people who expected long-term returns based on looking in the rear-view mirror," Buffett said.

Moreover, Munger doesn't think that double-digit will return anytime soon, perhaps not in his lifetime. "Is it likely there will be periods like 1973-74 or 1982 where equity values are mouthwatering," Munger rhetorically asked and quickly answered. "I think there is a very good chance neither Warren nor I will live to see an opportunity like that again."